Harleysville's S&P Rating Downgraded

NU Online News Service, May 21, 10:02 a.m.EDT?Standard & Poor's Ratings Services has lowered itscounterparty credit and senior debt rating on Harleysville GroupInc. to "Triple-B" from "Triple-B-Plus," citing first-quartercompany losses and the "volatile'' performance of itssubsidiaries.

The New York-based S&P said that the ratings outlook is"stable."

"The ratings action reflects the higher-than-expectedfirst-quarter losses and the historically volatile underwritingperformance of the company's insurance subsidiaries," said ThomasThun, credit analyst at S&P.

Late last month, Harleysville posted a first-quarter net loss of$3.2 million, after setting aside $20 million to cover workers'compensation claims.

Mr. Thun added that although Harleysville's insurancesubsidiaries maintain a good franchise, "they are at timeschallenged as middle tier insurers primarily underwriting in theMid-Atlantic and New England states."

Still, he said, these difficulties are offset by the company'smodest financial leverage, good financial flexibility and liquidityand the subsidiaries' "extremely strong" capital positions.

Mr. Thun also expects Harleysville's operating subsidiaries'underwriting performance to stabilize and reach a combined ratio ofbelow 105 percent for 2003.

S&P noted that the company's operating performance in the2003 first quarter, like those of some other property-casualtyinsurers, was hurt by winter storm losses.

The ratings firm also forecast that Harleysville's earningswould stabilize, as its workers' compensation business reservingissues are resolved. And earnings would stabilize further, S&Ppredicted, as various line segments more susceptible to higherfrequency and severity are run off.

Based in Harleysville, Pa., Harleysville offers a broad line ofcoverage in homeowners, auto, commercial multi-peril and workers'compensation. The company operates in more than 30 states, withabout 1,700 agencies.